CFPB / FDIC tradeoff looks even better today than 15 years ago

It’s difficult to know what’s lasting and what’s fleeting in the Trump Administration, but the longer things remain dormant at the Consumer Financial Protection Bureau, the smarter community bankers look..I have come to that conclusion after rereading my favorite book about the creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law in July of 2010. The book — “Act of Congress: How America’s Essential Institution Works, and How it Doesn’t” — is written by Robert Kaiser, a former editor at the Washington Post.The book, which was published in 2013, describes in amazing detail the various developments that followed the financial crisis of 2008, which spurred Congress to pass the sweeping reform law. Kaiser explains that Rep. Barney Frank wanted the legislation to, among many things, create a consumer financial protection agency. If the entire banking industry opposed the idea, Frank knew it would be nearly impossible to get it going, advocacy from Sen. Elizabeth Warren notwithstanding.Kaiser describes a one-on-one meeting Frank had with Cam Fine, who was president of the Independent Community Bankers of America. Frank and Fine, who differed on many issues, had a lot of respect for each other, given their thorough understanding of the political landscape. After considerable discussion, the two reached an important agreement. First, the new consumer protection agency would not send its examiners into banks with fewer than $10 billion in assets. Second, Frank would support a shift in the way deposit insurance premiums were calculated, moving to an asset base from the existing deposit base. In exchange for these concessions, the ICBA agreed it would not publicly oppose the creation of the new consumer financial protection agency. You know what happened. Congress passed Dodd-Frank and it included the creation of a new agency — the CFPB.Frank reached out to community bankers with both a stick and a carrot. Kaiser points out the stick wasn’t particularly pointed. He says that in 2010, only four of ICBA’s 5,300 members were institutions with more than $10 billion in assets. A $10 billion threshold for exams, therefore, essentially nullifies the sting of this new layer of supervision.And the carrot is particularly tasty. Kaiser notes that when deposit insurance premiums were based on deposits, as they were pre-Dodd-Frank, community banks paid 32 percent of the total premiums collected by the FDIC. Once the law shifted the collection based to assets, the portion paid by those smaller banks dropped to 19 percent. This was because the largest banks have a smaller percentage of their operations related to deposits than do community banks. The cost savings to community banks was said to be $1.5 billion back then. The only cost was the concession to permit exams in banks with more than $10 billion in assets, and the potential trickle down effect of CFPB rulemaking that might disrupt community banks even if they weren’t being examined. This was a big win for community banks!But the winnings for community banks continue to pile up. Fifteen years later, the CFPB has gone essentially dormant. There is no trickle-down regulatory impact on community banks from the CFPB. Yet, the cost savings to community banks resulting from the shift to an asset-based premium from a deposit-based premium continues to pay real dividends.You never know how this stuff is going to play out, but certainly the effects of some legislative moves aren’t felt until years, even decades, after they become law.